A blanket mortgage is traditionally a product often used by developers, investors, and businesses to purchase multiple properties with one mortgage loan. This is different from a traditional mortgage, in which a single loan finances a single property. In a pre-construction context, a developer can arrage a single, large mortgage that covers all of the units of a building, instead of requiring each individual buyer to secure their own financing right away.

NOTE: This does not mean that buyers are guaranteed to get a mortgage - you still need to qualify as normal.

So how does this help you?

The benefit of a blanket mortgage for pre-construction buyers is that a bank will agree to provide mortgages based on the purchase price - not the appraised value - i.e. they are "blanketing" the market values of the entire project. This means that no appraisal is required (saves you $500) but more importantly, there is no chance that you will be required to provide extra down-payment based on an appraisal short-fall.

When getting a mortgage, an independent appraisal is always required by the lender to determine the current market value of the property. If the appraisal comes back:

At the purchase price or above: then everything is good and there are no issues.
Below the purchase price: you will be required to come up with 80% of the shortfall as an extra down-payment at closing - I recently saw an appraisal come back $130,000 short and the buyer would have had to bring an extra $104,000 to close their deal.

Click here for more information and an example.

What are the advantages to buyers?

If a project is offering a blanket mortgage option, I always sign-up:

Early Approval: many banks will allow you to qualify for the mortgage today, even though you won’t get the property for several years. This has huge benefits because many buyer’s life situations change in this time and may no longer qualify at closing.
No Appraisal Required: Not requiring an appraisal at closing is huge! This saves you about $500 but also guarantees that your mortgage will be based on your purchase price, not the appraisal price which could be significantly lower in some cases, which protects you from needing to bring a significant extra down-payment at closing.
Interest Rate Hold: You can lock in a mortgage rate today but if the rate goes down, the bank will decrease the rate accordingly, giving you the chance to secure better rates closer to closing.
Flexibility: you are not bound to the mortgage approval, and can shop around at closing to see if you can get a better mortgage that better fits your needs.
Much Lower Stress: being unsure if you will qualify for a mortgage while your closing date is quickly approaching is incredibly stressful - trust me, I have been there many times. By qualifying today for your closing in a few years, you completely eliminate this stress because you know you are already approved. Having a mortgage “back-up” option you can rely on is invaluable.

What's my recommendation?

Blanket mortgage makes it simpler and less stressful to invest in pre-construction condos because the developer carries the financing risk during construction, not the individual buyer. I always sign-up for blanket mortgages options whenever they are offered - I have taken them in some cases and I’ve found better options as well - it protects your investments while still providing flexibility - there is no downside!

It’s always better to secure a mortgage than to try and save a few dollars on a slightly lower interest rate.

Contact me if you would like a referral to a mortgage broker to discuss your options.